Demystifying the Housing Myth

March 31, 2007  by in UnCategorized   

By Home Furnishings Business in Furniture Retailing on April 2007 Home furnishings sales are tied to home purchases, it’s a given. Any industry veteran will testify that one of the prime motivators for furniture customers to shop is new-home decorating.

Does the new place have a formal dining room and all the consumer has is a 7-year-old dinette set from the last home’s kitchen? Or maybe the consumer has downsized to a retirement condo and the suite that “made” her last master bedroom won’t even fit into the new room?

So when the nightly national news programs lead with stories on the bursting of the housing bubble, furniture retailers feel a cold shiver running up their spines. But did anyone actually hear a popping sound?

At first glance, 2006 housing statistics look lean compared with 2005 results. So how do they measure up against 2004 and earlier numbers?

In 2006, nationwide sales of existing homes slipped 8 percent from 2005, but 2005 numbers were up 4 percent over 2004 figures. According to preliminary numbers released by the National Association of Realtors, January 2007 sales increased to 6.5 million, a 3-percent increase over December sales. One month doesn’t signal a trend, but it’s a good way to start the year.

Statistics on pending home sales, also compiled by NAR, are similar. Pending home sales (the contract has been signed, but the sale hasn’t closed yet) were down 10 percent, 2006 over 2005, but 2005 figures increased 3 percent from 2004.

New home sales, tracked by the U.S. Dept. of Commerce, fell 17 percent from 2005 to 2006. That’s following a 7-percent increase in 2005. Residential home construction starts—another statistic compiled by Commerce—fell 13 percent in 2006 on top of a 6-percent increase in 2005.

What it all means is that the housing industry may be slipping from its high watermark in 2005, but there is still strength in the market.



Compass Points

Regionally speaking, the South has remained the steadiest. Existing home sales were off 5 percent in 2006, following a 6-percent increase the year before. The area posted a 12-percent decrease in new home sales in 2006 after securing a 14-percent growth rate the year before.

Residential construction starts and pending home sales followed the pattern. Starts were down 9 percent in 2006, but up 10 percent in 2005, as pending sales slipped 6 percent in 2006 after a 6-percent improvement in 2005.

Hardest hit was the West. Declines in 2006 were 15 percent, 16 percent, 25 percent and 16 percent, respectively, for existing home sales, new home sales, starts and pending home sales, measured against 2005 increases of 3 percent, 3 percent, 2 percent and 5 percent, respectively.

Housing dollars are still in the market. According to NAR, average home prices for existing homes were flat or up slightly from 2005 to 2006. The national average selling price in 2006 was $268,200, compared with $266,600 in 2005.

Prices may not have made big gains in 2006, but they’re still significantly higher than in 2004. NAR statistics show 2006 average selling prices for existing homes were up 9.7 percent from 2004 nationwide, with Northeast prices up 9.5 percent, Midwest prices gaining 8.4 percent, South prices increasing 6.7 percent and West prices jumping 14.5 percent.



Bankers Weigh In

Experts in the field are far from putting the housing industry on life support. The Mortgage Bankers Association (MBA) projects 2007 housing numbers will follow 2006 trends, as the industry retrenches, but predict a slight uptick in 2008.

MBA also sees little fluctuation in home prices in the coming two years. Median sales prices for both existing and new homes are expected to be off 1 percent in 2007, but rising 2 percent in 2008.

Mortgage rates will be stable, too, according to MBA. Those 30-year fixed-rate mortgages are projected to have an interest rate of 6.4 percent in 2007, identical to the 2006 rate, and are expected to be up slightly—to 6.6 percent—in 2008.

Home ownership rates have steadily increased over the past decade. U.S. Dept. of Commerce statistics show a national home ownership rate of 68.9 percent at the end of 2006, up from 65.4 percent at the end of 1996.

In 2006, the Midwest region led the nation with a home ownership rate of 73 percent. Next in line were the South, 70.8 percent; the Northeast, 65.3 percent; and the West, 64.5 percent.

All in all, it looks as if the housing industry is going through the natural settling process following a boom period. And a settling process is not a gloom-and-doom disaster. 2005 was a good year for the industry—repeating it in 2007 should suit everyone just fine. HFB